2. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
It doesn't matter if a cat is
black or white, so long as it
catches mice.
Deng Xiaoping
China starts its path to prosperity In China, Deng Xiaoping’s time in power begins. He continues the communist
party’s monopoly on power, but starts economic reforms. He famous statement about the color of the cat indicated his willingness
to forget communist dogmatism and opt for capitalist methods in matters of economic policy as long as the goal was reached –
economic growth. Time Magazine’s 1985 article looked at the changes that had started to take hold.
3. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
A bid to control population China’s one-child policy is born. Much derided, and the cause of much agony, it has over
the years since its inception helped achieve the goal of stabilizing an exploding population. Chinese authorities claim that the
policy has reduced child births since its implementation with 400m. The resulting current population pyramid is starting to
resemble a “traditional” western age distribution. In contrast to India, which will benefit for a demographic dividend for years to
come, China must rely on productivity improvements to fuel growth.
4. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP in trillion $
US$ 2.8$
Japan$ 1.1$
Germany$ 0.9$
France$ 0.7$
Great$Britain$ 0.5$
China$ 0.2$
India$ 0.2$
Starting from a low level China’s GDP is $200bn in 1980. India’s GDP is $200bn. The combined economic power of the
Asian giants is less than a fifth of America’s, and the countries have little bearing on the global economy.
5. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
One billion people
China’s population passes the one billion mark
6. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Bhopal disaster in India Gas leak at Union Carbide plant in Bhopal, India. Thousands die as a result, and the incident
marks a setback in Indian sentiment for foreign commercial projects.
7. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The Tiananmen protests The Tiananmen protests come to a climax on June 4 when the Red Army is called out to
contain the protests. The streets were cleared with live ammunition and observers estimate that several hundred people were
killed. Governments around the world condemned the government’s action, and economic activity came to a dramatic, if
temporary, halt. In 1988, China’s economy grew at a pace of ca 11%. In 1989 and 1990 growth had slowed to a mere 4%.
8. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP $ billion
7,000 China India
6,000
China Year 1 = 1982
5,000 India Year 1 = 1991
4,000
3,000
2,000
1,000
-
Year 1 Year 5 Year 9 Year 13 Year 17 Year 21 Year 25 Year 29
India starts its program of economic reform A mix of inspiration and fear resulting from China’s rise prompts
India to start its own program of economic reforms. With a lag of 10-12 years India’s progress tracks that of China quite closely.
9. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The establishment of DNB’s Hong Kong office The long term potential of China and the region is becoming
clear. As one of the very first movers among Scandinavian asset managers, we set up shop in Hong Kong. To understand the
companies and the market it is necessary to be present and do your own primary research. The same year we also launch the
Asian Small Cap fund - one of the first to focus on small capitalization companies. The investment process relies heavily on first
hand interaction with the companies we invest in. On the picture: the Hong Kong harbor.
10. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Hong Kong Hang Seng Index
18000
16000
14000
12000
10000
8000
6000
May-97 Aug-97 Nov-97 Feb-98 May-98 Aug-98
The year of the Asian financial crisis The crisis hits the region hard. Local governments are ill equipped to deal
with the crisis. The resulting embarrassment and hardship lead to more conservative economic policies and to the build-up of
national reserves. This comes to make up the foundation for the regions resilience through the next financial crisis ten years later.
China was perhaps the Asian nation that weathered the crisis best - even though the stock markets fell dramatically, the country
maintained the currency peg to the dollar and growth rates never dipped below 7%.
11. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
We set up office in Chennai, India Based on the same philosophy that led to a presence in China, we set up an
office in India three years later. With its reform program taking hold, India is emerging as the second big center of investor
attention in Asia. The country has a strong class of well educated people, and excellent command of English is widespread.
12. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
China takes over the rule of Hong Kong The significance of the island as a financial center in the East has continued to grow
under Chinese rule. Before the hand-over, many Hong-Kong natives that could secured a second passport, often issued by a commonwealth country.
The early fears have largely been laid to rest. Today, holders of Hong Kong passports can travel as freely as holders of “western” passports.
13. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
One billion people
India’ population passes the one billion mark
14. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
India supports the “War on Terror” In the aftermath of 9/11 India supports the “war on terror”, and US lifts
sanctions it put in place in 1998 to punish India for nuclear tests.
15. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Lenovo buys IBM’s pc business A new trend can be observed; Chinese companies are making their presence felt on
the international arena. Previously considered the “sweatshop of the world”, Chine is increasingly a home to companies that
successfully compete in sophisticated sectors.
16. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Indian companies go global India’s Mittal buys European steel maker Arcelor. The combined company will supply 10%
of the world’s steel consumption. The picture shows ArcelorMittal’s headquarters, built in 1922, and possibly Luxembourg City’s
finest building.
17. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
DNB India DNB China Century
ISIN: LU0302237721 ISIN: LU0302238612
Fund launch We launch two new country funds. One, “India”, invests into a concentrated portfolio of Indian companies. The
second fund, “China Century”, invests in Chinese companies. The portfolio is concentrated and the fund has a small cap tilt.
18. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ million China's total reserves ex. gold
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Well prepared for the crisis Both China and India enter the crisis in much better shape than their western
counterparts. Indebtedness of governments and households are low in comparison, and in China’s case, foreign currency reserves
are large. The reserves enabled China to announce quickly after Lehman’s collapse in September to announce a massive stimulus
package of nearly $600bn that would fight the effects of the crisis on the Chinese economy.
19. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Olympic host China hosts the Olympic Games, one of the most expensive games in history. To improve air quality emissions
were cut dramatically prior to and during the event. The “blue skies policy” demonstrated the attractiveness of clean air and gave
further wind to initiatives that aim to reduce the environmental impact of China’s economic progress.
20. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The People’s Republic turns 60 From an economic point of view, China is in good shape. The picture shows Beijing’s
central business district.
21. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP$growth$rates$in$%$
20$
15$
China$
10$
India$
France$
5$
Germany$
US$
0$
Japan$
2006$ 2007$ 2008$ 2009$ 2010$
!5$
!10$
Locomotives of growth The pain in the real economy following the financial crisis is being felt. In the global recession,
China and India grew their output by $450bn. The rest of the world contracted by $1100bn.
22. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
80 million new Indians
40 million new Chinese
16 million new Americans
2 million Europeans
Next five years: growing populations, a massive market China and India’s combined population has grown
to 2.6bn people, close to 40% of world population. Estimates predict that we will over the next five years see 80m new Indians
born, 40m Chinese, but only 16m new Northern Americans and 2m new Europeans.
23. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
India’s demographic dividend In the case of India, the continued growth and youthfulness of the population is often
called the “demographic dividend”, and is expected to be one of the cornerstones for future growth. More than 30% of all Indians
are under the age of 15, only 13% of Germans are.
24. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
A shift to the East The accelerating shift of economic and political power to the east prompts HSBC to relocate its CEO
from London to Hong Kong. Investor Jim Rogers has also made Asia his new home to be closer to what he sees as the most
dynamic investment region for the foreseeable future.
25. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP in trillion $
Text
US% 14.6%
China% 5.7%
Japan% 5.4%
Germany% 3.3%
France% 2.6%
Great%Britain% 2.3%
India% 1.4%
Global powers China’s GDP has grown to $5700bn, and has become the second largest economy in the world. This is by
itself close to 40% of America’s, and represents almost a 30 fold increase upon the GDP figure from 1980. India’s GDP is 1400bn.
26. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The need for infrastructure To support growing economies both India and China have large programs in place to
develop their infrastructure. When compared to the US, the need for investment becomes clear. India and China combined have
less than 1000 airports. The US has 15000. They have a little more than half of the rail road network that the US has and
approximately the same length of paved roads.
28. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
500"
450"
400"
350"
300" India
250"
200"
China
150"
100" Europe
World
50"
0"
Jan+00" Jan+02" Jan+04" Jan+06" Jan+08" Jan+10"
Handsome investors’ returns Not only the real economy of Asia, but also stock markets have performed better than
their western counterparts. Over the period 2000-2010, global stock market returns were flat. Investments in China nearly
doubled in value, and Indian investments grew threefold.
29. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
China, the world’s biggest car market 2000 new cars enter the traffic of Beijing every day. Chinese auto sales
jumped more than 30% to 17m units for the year, overtaking the US as the world’s number one auto market.
30. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Use/producCon"per"year"
1600"
1400"
1200"
1000"
800"
600"
400"
200"
0"
Cement"(million"tons)" Steel"(million"tons)" Power"MW"(thousand"MW)" Aircra?"(units)"
China" India"
China consumes roughly half of the world production of steel and cement India has some catching
up to do.
31. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Environment
Share the wealth - harmonious society
Domestic consumption
Sophisticated production
12th five-year plan moves priority to higher value added China releases its 12th five-year. The
government wants to increase domestic consumption, develop the service sector, and clean up the environment. It also wants to
move up the ladder and produce and sell goods of higher value and sophistication. The plan marks a shift from a primary focus on
rapid growth to growth that is shared more fairly across the population.
32. Beyond Both India and China have demonstrated willingness and ability to make their economies grow. With the crises of 1998
and 2008 fresh in memory, they work hard to maintain reserves that can be used to fend off difficult times and promote policies
that facilitate further growth.
India has started a process of simplifying and lowering taxes. Tax filings and other filings can now be done electronically – an
improvement of efficiency and transparency. All Indians will in the time to come receive individual personal identification numbers.
The initiative has been called the “IT project of the century”, and will among other things enable the government to target public
spending with better effect.
Besides the building of infrastructure, personal consumption is set to grow as an expanding middle class is increasingly able to
spend on health care, education and leisure. Also, India retains its position as the world’s favored destination for IT outsourcing.
China still makes 80% of the world’s toys and 70% of its mobile phones.
It all translates into a dynamically growing business environment, one that is expected to lead the world in growth, and one that
holds the potential to give investors that chose to participate very competitive returns.
33. Source list Slide #3: Wikipedia; 4: CIA World Factbook; 6: Wikipedia <link>; 8: Deutsche; 12: Bloomberg; 16: Wikipedia
<link>; 18: Bloomberg; 21: World Bank; 22: UN; 25, 26: CIA World Factbook; 28: Bloomberg;